P2P War Takes Bad Turn for Hollywood

Since peer-to-peer (P2P) exploded on the scene in the late 1990's, the
entertainment industry has waged legal war against the distributive
technology that sparked the greatest raid on copyrighted music in history.

Hollywood drove the first Napster out of business and flooded other P2P
companies with expensive litigation. The industry threatened lawsuits
against corporations that permitted employees to install the file-swapping
software. Last year, the media moguls began suing individuals who download
copyrighted material through P2P networks.

Thursday, though, the legal war took a calamitous turn for Hollywood.

Upholding a lower court decision issued in April of 2003, the U.S. 9th
Circuit Court of Appeals ruled P2P technology is legal even if the software
itself is used for illegal purposes.

"The technology has numerous other uses, significantly reducing the
distribution costs of public domain and permissively shared art and speech,
as well as reducing the centralized control of that distribution," Judge
Sidney R. Thomas wrote in a unanimous opinion.

The three-judge panel acknowledged that copyright violations do occur on the
decentralized P2P networks, but the companies owning and distributing the
enabling software cannot be held liable for the infringements.

"We live in a quicksilver technological environment with courts ill-suited
to fix the flow of Internet innovation," Thomas wrote. "The introduction of
new technology is always disruptive to old markets, and particularly to
those copyright owners whose works are sold through well-established
distribution mechanisms."

As legal precedent, the court cited the landmark Sony Betamax case video recorder case of 20 years ago, in which Hollywood studios tried to make Sony responsible for the
copyright infringements of Betamax owners who videotaped programming off their televisions. Ultimately, the U.S. Supreme
Court said the use of new technology to infringe copyrights did not justify
an outright ban on that technology.

A significant key to the decision was the court's distinction between
Napster's original service and the P2P software now offered by Grokster and
Morpheus, the principal defendants in the case.

In Napster's case, an index of material available for file-swapping was
maintained on a central server. Neither Grokster nor Morpheus use central
servers. In that situation, the court said, the two file-sharing software
distributors have no control over the actions of their customers.

"The district court found that unlike Napster, Grokster and StreamCast [the
owner of Morpheus] do not operate and design an 'integrated service which
they monitor and control. We agree," Thomas wrote. "The nature of the
relationship between Grokster and StreamCast and their users is
significantly different [than] prior versions of Napster and its users,
since Grokster and StreamCast are more truly decentralized, peer-to-peer
file-sharing networks."

Both the Motion Picture Association of America (MPAA) and the Recording
Industry Association of America (RIAA) issued statements late Thursday
saying they were reviewing the decision and considering a Supreme Court
appeal.

"Irrespective of what any court says, a debate has crystallized: it's
legitimate versus illegitimate," the RIAA's CEO Mitch Bainwol in a statement.
"It's whether or not digital music will be enjoyed in a fashion that
supports the creative process or one that robs it of its future. That's the
online future of music."

The MPAA's Jack Valenti said the decision "should not be viewed as a green
light for companies or individuals seeking to build businesses that prey on
copyright holders' intellectual property. Businesses that ignore their
responsibilities as corporate citizens profoundly undermine innovation in
both the creative and technological arenas."

Not surprisingly, the P2P industry was excited about the decision.

Michael Weiss, head of Streamcast Networks, issued a statement saying, "As
CEO, I am proud that Morpheus has become the first American P2P company to
successfully win its fight for the right to continue to develop innovative
new distributed communications technologies.

Adam Eisgrau, the executive director of P2P United, a trade group whose
members include Grokster and Morpheus, called the decision a "complete and
utter rejection of the entertainment industries' attempts to warp
long-standing, pro-innovation copyright law into a weapon against
peer-to-peer technology."

He hailed the P2P win as a "profound and major victory for the American
consumer and our economy. Critically, the court cut through and rejected
Hollywood's and Big Music's propaganda about peer-to-peer software and the
P2P United member companies sued in this case to find the truth."